Crisis of Reparations

Crisis of Reparations

Britain's foremost financier, the Morgan of the Empire, John Baring, Baron Revelstoke, died suddenly in Paris last week a few hours after presiding at a crisis which everyone then believed to mark the utter disruption of the Second Dawes Committee (TIME, Feb. 18, et seq.).

Less than eleven weeks ago, Lord Revelstoke joined with John Pierpont Morgan, Owen D. Young and other financiers of unsurpassed prestige in a supreme effort to revise the Dawes Plan and place the reparations debts of Germany on a business not a political basis. No irony can be more keen than the fact that the death of Baron Revelstoke last week, with its consequent effect of quelling the passions of all concerned, alone preserved the most august fiscal conclave in the world from immediate and ignominious adjournment. The crisis came when (with Baron Revelstoke in the chair of the bankers' committee) the 28-billion-dollar bill for reparations which the Allies presented last fort night, was countered by a German offer to pay 15 billions. The discrepancy between this demand and offer is almost three times as great as the total value of all U. S. banknotes now in circulation. In short, creditors and debtor were absolutely no where near each other.* A distinct impression was received by U. S. representatives Owen D. Young and Thomas W. Lamont* that the German offer was made in a deliberate attempt to break up the conference. The brusque "Iron Man" of the Reich, Dr. Hjalmar Schacht, entered with glowering, ungracious mien; spoke in sharp gutturals; rustled his papers with an air of grim finality. Afterwards the U. S. delegates-- while not allowing themselves to be quoted --conveyed their impressions to correspondents in the strongest terms. "They [Mr. Young and Mr. Lamont] had imagined that they were dealing with a negotiator who meant business like themselves," wrote Correspondent P. J. Philip of the painstaking New York Times. "Instead they say they have discovered that they were dealing with an obstinate man with a narrow view of his responsibilities." The French press charged that the "Iron Man" aspired to become Chancellor of Germany and thought he could achieve the necessary popularity by posing as one who dared to defy all Europe and the U. S. in defense of his Fatherland. When correspondents carried this charge to Dr. Schacht he exclaimed with great earnestness: "That is a mistake. I shall never accept any political office. You may quote me on that without reservation." "Branded with Defeat." The complex and dangerous situation which had developed can best be understood by reviewing its background. The so-called Dawes Plan (chiefly drafted by Mr. Young) fixed the annual maximum which Germany can be called upon to pay, but did not fix the total maximum. The chief purpose for which the Second Dawes Committee assembled was to try and fix this total. The much-mentioned "transfer clause" of the Dawes Plan protects Germany by providing partial and temporary relief from the necessity of meeting her annual obligations in the event of a fiscal crisis. When the Second Dawes Committee met it was hoped that Germany, in return for substantial concessions, would agree to waive the protection of the "transfer clause," at least in part, and pledge herself to pay unconditionally a large portion of her debt. Against this pledge bonds were to be issued, through a stupendous bank of international settlement, and sold to the public. Thus the political debt of Germany to the Allied Powers would be transformed into a business debt to millions of bondholders. Up to last week Wall Street was expectantly ready to sell the bonds. The general situation was believed so favorable that Ford, General Motors and Chrysler were all in course of putting through enormous expansion projects to sell their cars in Germany. The report of the Agent General of Reparations, Seymour Parker Gilbert, indicating that Germany could meet the Allied demands (TIME, Jan. 14), was a most potent factor in all these plans and expectations. Mr. Gilbert was slated to become a Morgan partner; and the august presence of John Pierpont Morgan himself in Paris fostered a belief that the Second Dawes Committee, chairmanned by Mr. Young, who virtually devised the Dawes Plan, simply could not fail.

The committee did succeed in agreeing on the nature and functions of the proposed international bank of settlement (TIME, March 11, 25), and at the very worst, that notable achievement, set forth in a voluminous report, will crown the labors of Mr. Morgan and Mr. Young. Said a member of the Japanese delegation when things looked blackest last week, "I am deeply sorry for our chairman. Mr. Young has done everything a man could possibly do to make for success. It is a shame that his wonderful work should be branded with defeat. He deserved something far, far better!" Allied Bulls Baited. The offer made by Dr. Schacht, which seemed to brand FAILURE upon all concerned last week, was in fact a pair of alternatives. The Allies could take their choice, and in either case they would get 15 billion dollars over 37 years. The first offer (which so enraged the French and British that they almost for got there was a second) provided that if Germany were granted "access to colonial raw material," preferential tariff treatment from the Allies, and "economic communi cation with the detached province of East Prussia, then the Fatherland would pledge unconditional payment of the 15 billion dollars. The second offer provided for pay ment of the same amount but was conditional and so drawn as to provide even more protection for Germany than that country already receives under the "transfer clause" of the Dawes Plan. In fairness to Germany it must be remembered that the Fatherland was stripped of colonies after the War, and thus deprived of raw materials which would very materially have assisted debt payment. It is conceivable that in German East Africa alone there may eventually be found enough gold, copper, coal and oil to pay the whole reparations bill. It is but natural that Dr. Schacht should cast eyes upon these resources, that he should remember East Prussia, now cut off from Germany by the "corridor" which Poland was given to connect her with the sea. On the other hand the "Iron Man" might have had common sense enough not to wave two red rags before two bulls. That was exactly what he did by so much as mentioning the "corridor" to France (friend of Poland) or alluding to "colo-nies" in the presence of Britain (which holds East Africa as a mandate). Not only did Dr. Schacht render the Allied delegates speechless with indignation, but he antagonized the U. S. representatives, who pride themselves on being "business-men" and who grew quite heated in assuring correspondents that they would not-- no never!--be dragged into a "political" wrangle. Germany's representative had, moreover, displayed the God-given ungraciousness for which he is famed even in Berlin. A breakdown of the negotiations was per-haps inevitable, but it came suddenly and at a particular moment chiefly because of personal animosity stirred up by the "Iron Man." He himself left the session at which the "break" was said by everyone else to have occurred in his usual frame of mind, remarking: "We have been checked, that is all." Not until the bulls he had red-flagged came snorting forth was the situation realized. In Prussia, heads come square and hard--so much the worse for Germany. Death of Baring. Sorely and righteously angry in his quiet, aristocratic way, John Baring, Baron Revelstoke, rode away from the disturbed atmosphere of the Hotel George V and sought the apartment of his brother and heir Hon. Cecil Baring. The late King-Emperor Edward VII gave his friend and counsellor John Baring less than no reason to suppose that he would be refused if he sought the hand of His Majesty's second daughter, the Princess Victoria. Nonetheless John Baring, Baron Revelstoke--the Morgan of the empire-- remained single. Perhaps the great House of Baring Bros. & Co., Ltd., had no more need of alliance with royalty or the like than has the House of Morgan now. It sufficed that John Baring's sister Susan had been a maid of honor to Queen Victoria. The establishment of colossal credits which accelerated the industrialization of Japan, and the rehabilitation of Argentina's finances, were two big jobs done by Lord Revelstoke before the War. Throughout the entire conflict he influenced, when he did not direct, the financial program of the empire, borrowing and purchasing in figures undreamed of before. Much as Mr. Morgan visits London every year, so Lord Revelstoke rarely let a twelvemonth pass without crossing over to New York. The present Mrs. Cornelius Vanderbilt was once, with Lord Revelstoke's approval, engaged to Cecil Baring, but eventually Cecil married Miss Maud (Old Gold) Lorillard. The event of last week of course makes her a baroness. A quiet supper and the evening papers --such was the prelude to Death of England's mightiest Man of Property. He had been warned not to sit on the Second Dawes Committee by physicians who had for years been tending his weak heart. At 65 he deliberately chose the course of action--he who was known in London as "the man who never takes a risk." At about 9 p. m. a correspondent reached Baron Revelstoke by telephone. His voice suggested weariness, resignation, resentment: "I can't understand Dr. Schacht. In fact he astonished me. . . . It was quite a shock. . . . The outlook is not hopeful. . . ." Soon after 11 p. m. John Baring knocked out his pipe and began to undress. His valet switched off the light and left him. He died of heart failure in the early morning hours. Schacht to Berlin. On the various German stock exchanges issues tumbled last week at news of the crisis, though the average decline was probably not over four points. The stabilized gold mark moved 23.70 cents to 23.67, then returned to 23.70 cents. Because the new German currency is supposed to be artificially pegged and subject to virtually no fluctuation, even this slight flurry was considered extremely ominous. After a conference with Mr. Young, Dr. Schacht rushed to Berlin. In Paris a most inflammatory remark was let fall by famed Georges Clemenceau, retired elder statesman. "Schacht's offer and his designs," growled the "Tiger," "tend toward nothing less than a new war!"

*They appeared to be a trifle nearer if one compared the present cash value of the bill (ten billions) with the present cash value of the German offer to pay (six and one-half billions). What the Allies were actually asking, however, was a total of 28 billions, paid on the installment plan over 58 years, whereas the Germans offered 15 billions in 37 years. The costliness of paying on the installment plan was never more apparent, but there is no possibility that the stupendous sums owed can be paid in cash. *Mr. Young is chairman of the Second Dawes Committee, but sat under Lord Revelstoke as a member of the Bankers' group (TIME, March 11). Mr. Lamont sat last week as official alternate for his senior partner, Mr. Morgan, who was on his black yacht Corsair in Adriatic waters nursing a cold.